US embassy cable - 05BAGHDAD4345

S E C R E T SECTION 01 OF 02 BAGHDAD 004345 
 
SIPDIS 
 
E.O. 12958: DECL: 10/20/2015 
TAGS: ECON, ENRG, EFIN, ETRD, EPET, MOPS, MARR, PGOV, PREL, TU, IZ, Petrolium, Energy Sector 
SUBJECT: IRAQ'S FUEL SITUATION WORSENS UNDER IMPACT OF 
BLACKOUTS, PIPELINE INTERDICTIONS AND UNPAID BILLS 
 
REF: A. BAGHDAD 4335 
     B. BAGHDAD 4322 
     C. BAGHDAD 4231 
 
Classified By: Economic Minister Counselor Tom Delare for reasons 1.4 ( 
b) and (d). 
 
1.  (S) Summary: National power blackouts and repeated 
interdictions of crude oil and product supply lines to and 
from major refineries have reduced Iraq's domestic fuel 
production, and increased its reliance on imported fuel. 
Stores of gasoline are low (critically in the north) and 
dropping, as are stores of LPG.  A protest against the fuel 
shortage October 18 turned violent in Mosul.  Fuel imports 
from Turkey, however, are extremely low, due largely to 
Iraq's failure to pay its bills to Turkish suppliers.  The 
GOI seems to be moving to meet a significant part of these 
arrears in the next several days.  End Summary. 
 
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Domestic Production Low 
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2.  (S) Refineries in Iraq are operating below capacity due 
to the effect of a series of blackouts October 14, 17 and 18, 
as well as interruptions in the supply of crude oil. 
Although Daura refinery was able to maintain operations, both 
Bayji and Basrah were forced to shut down, only now gradually 
returning to operation.  After running several days under 
20%, Bayji's production reached 51% of capacity on October 
20; Daura increased its capacity to 88% (up from production 
levels in the mid-70s), with crude oil arriving by tanker 
truck.  The October 13 explosion at the al-Fatah crossing of 
the Tigris, coming on the heels of previous interdictions, 
has forced the Ministry of Oil (MoO) to move an increasing 
amount of crude oil by truck in order to keep the refineries 
working.  Most recently, the interdiction of the 26 inch 
Kirkuk-Bayji crude oil line October 20 and resulting fire 
reduced pumping of crude oil across al-Fatah, limiting the 
supply to Bayji refinery and exports to Turkey for the second 
time in the past month.  Repairs are expected to take eight 
days once the fire is extinguished. 
 
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And Increasingly Difficult To Move 
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3.  (S) Moving refined products to market from the refineries 
is also becoming increasingly difficult.  Supplies in Baghdad 
(plussed-up prior to the referendum) are gradually declining; 
these reached 6.4 days of supply on hand October 20 (down 
from 10.2 the previous week).  The interdiction of the 8 inch 
LPG Bayji-Baghdad pipeline October 19 has cut off Baghdad's 
main line supplying the capital with cooking fuel.  Stocks of 
LPG were already under two days on hand (down from a six a 
week ago) in both Baghdad and Mosul as of October 20. 
Furthermore, the last remaining LPG line to Baghdad (the 14 
inch) is under threat from the October 20 fire on the 26 inch 
crude pipeline. 
 
4.  (S) In the northern provinces, however, the situation is 
worse, and black market prices for fuel have skyrocketed in 
recent weeks (Ref A).  Mosul reported just over a one-day 
supply of gasoline on hand October 20.  Crowds protesting the 
shortage of gasoline turned violent in Mosul October 18, 
setting fire to two gas stations.  Local media reported 
October 20 that official gas stations in Kurdistan had closed 
due to lack of supply. 
 
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"Check's In the Mail" Redux 
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5.  (C) The GOI acknowledged that it is some $450 million 
behind in payments to Turkish fuel suppliers; it is not clear 
when exactly the bill will be paid (Comment: Turkish MFA 
officials put the total arrears at $840 million.  End 
Comment).  The Ministry of Finance, after consulting with MoO 
(Ref B) has authorized the payment of this amount from the 
Ministry of Oil's capital budget.  An additional approval 
from the Ministry of Planning and Development Cooperation 
(MoPDC) is also required, however, as MoPDC must authorize 
any capital budget transfers.  Contacts at MoPDC reported 
October 19 that the Minister intends to sign the necessary 
paperwork, but this approval and processing the actual 
payment through the Ministry of Finance may take several more 
days.  If all goes according to plan, the Federal Reserve 
Bank of New York should receive a payment order by Monday 
October 24. 
 
6.  (C) Comment: The lack of redundancy in the electrical 
grid caused by a series of attacks on electrical towers 
leaves the system vulnerable to outages that, in turn, cause 
the refineries to go offline.  Pipeline interdictions, 
regardless of cause, interrupt both the flow of crude to the 
already under-producing refineries and the delivery of 
product to markets.  Iraq's imports, necessary to meet the 
over 50% of the country's demand unmet by domestic 
production, are increasingly unreliable - no surprise, given 
the GOI's attempts to float its fuel import arrears. 
 
Satterfield